Increased profit from property management and strategic acquisition
Interim report January - September 2013
RESULTS IN BRIEF
Third quarter (July–September)
- Net sales increased to SEK 550 (499) m and gross profit to SEK 353 (322) m.
- Profit from property management improved, amounting to SEK 179 (128) m, equivalent to SEK 1.31 (0.94) per share.
- Profit/loss before tax was SEK 231 (–29) m, and profit/loss for the period was SEK 214 (–13) m, or SEK 1.57 (–0.10) per share. The increase in profit/loss for the period is mainly due to the third quarter 2012 being charged with a fall in value of interest derivatives.
- Cash flow from operating activities was SEK 154 (–156) m, or SEK 1.13 (–1.14) per share.
Interim period (January–September)
- Net sales decreased to SEK 1,601 (1,616) m, while gross profit improved to SEK 947 (935) m.
- Profit from property management increased to SEK 400 (355) m, or SEK 2.93 (2.60) per share.
- Profit/loss before tax was SEK 799 (353) m, and profit/loss for the period was SEK 683 (–571) m, or SEK 5.00 (–4.18) per share. The increase in profit/loss for the period is primarily due to the second quarter 2012 being charged with SEK –985 m of provisions for tax risks.
- Cash flow from operating activities was SEK 462 (67) m, or SEK 3.12 (0.49) per share.
- The property portfolio excluding modular buildings as of 30 September 2013 consisted of 279 (275) investment properties with a book value of SEK 14,479 (14,247) m.
Third quarter (July–September)
- Biljana Pehrsson was appointed Chief Executive Officer on 1 September.
- Kungsleden purchased 5 (–) properties for SEK 125 m and sold 1 (41) property in Germany for SEK 93 (1,022) m, generating a profit of SEK 0 (0) m.
- The Swedish Administrative Court of Appeal made negative rulings in a number of BV proceedings. However, Kungsleden has already made adequate provisions to cover these outcomes and intends to appeal.
Interim period (January–September)
- 7 (–) properties were purchased for SEK 194 m and 4 (44) properties were sold for SEK 108 m (1,115), generating profit of SEK 4 m (17). In addition, Kungsleden agreed the purchase of a property in Lund, in southern Sweden, for SEK 173 m, with completion scheduled for the fourth quarter.
- In February, Kungsleden completed the sale of Hemsö to AP3 (the Third Swedish National Pension Fund), significantly strengthening Kungsleden’s liquidity and permitting substantial loan amortisation.
After the end of the period
- On 21 October, Kungsleden signed a binding agreement with GE Capital Real Estate to purchase 84 properties for approximately SEK 5.5 bn. The agreement is dependent on the Swedish Competition Authority’s deliberations and closing is scheduled for December.
- From 1 October, Kungsleden introduced a new business steering group, replacing the former group management.
A COMMENT FROM CHIEF EXECUTIVE OFFICER
Nearly two months have passed since I took over as Chief Executive Officer of Kungsleden on 1 September, and embarked on the task of leading the company towards becoming the market’s most profitable and successful property company. The third quarter can be described as intense and we’re delivering a strong quarterly profit that demonstrates that we’re moving well towards our previously stated targets. Following the end of the quarter, we also entered into a purchase agreement on GE’s property portfolio.
As the new Chief Executive Officer, I’ve spent time learning about Kungsleden in more detail. I have met all members of staff and visited all our regional offices as well as a large number of properties in each region. I have met around twenty investors and shareholders in Stockholm, Amsterdam and London, around ten financial analysts and held meetings with many of our key banks and other market players. My introduction has been very educational and rewarding. The impression I have so far exceeds my expectations. I can see that there’s a renewed interest in Kungsleden as a company and the share and that expectations on us are growing—that’s really encouraging!
Results Profit from property management for the quarter increased by close to 40 per cent to SEK 179 m as a result of factors including costs being down by just over SEK 10 m. Net sales increased by SEK 50 m, of which revenues from module sales were SEK 20 m. Property yield was 8.7 per cent (8.4) for the quarter.
After the end of the reporting period, we signed a binding agreement for the purchase of GE Capital Real Estates’ property portfolio in Sweden. It is great to be able to sign this agreement, especially as the portfolio of 84 properties fits so well with our new strategy. The acquisition immediately brings Kungsleden’s portfolio volume to a level that otherwise, we would have expected to take one to two years to attain. Geographically, around 70 per cent of the portfolio we’re purchasing is located in Stockholm and Gothenburg. The purchase means that the proportion of properties located in the three major city regions increases from 30 to 50 per cent of Kungsleden’s total portfolio, at the same time as the share of offices increases from 39 to 50 per cent. This is entirely in line with our new strategy towards a greater concentration of the property portfolio, focusing on growth regions and office, industrial/warehouse and retail.
I would like to take this opportunity to extend a warm welcome to the people who are joining us from GE. Alongside them and all members of Kungsleden’s staff, I’m looking forward to continuing our journey towards implementing our new strategy.
New organisational structure As an important step in the implementation of our new strategy, we’ve introduced a new organisational structure and business model. We’re clarifying our core business in three business areas—Property Management, Property Development and Transaction & Analysis—supported by key group-wide functions. In order to deliver successfully as active and skilful owners, managers and developers of our properties, it’s important that we have a local presence and closeness to our customers and tenants. From 1 October, we’re implementing a new business steering group that replaces the former group management. The new business management includes Business Area Managers and Regional Managers, in addition to existing members of the group management. The change means shorter decision paths that increase our flexibility and bring us even closer to customers and our business. In addition, it clarifies regional profit accountability.
One of the stated financial targets has been to save some 10 per cent on our central and administrative costs, taking full effect from 2014. We think this target is achievable as early as the fourth quarter this year.
Outlook Financial and political uncertainty persists in many areas of the world, but the outlook for the Swedish economy is still favourable. We’re seeing a slightly improved property market. In the third quarter, transaction volume was approximately SEK 21 bn, up 50 per cent on the corresponding period of last year. Increased appetite amongst investors and banks to fund property transactions is bringing hope of positive value growth.
To conclude, the new strategy and the acquisition of GE’s properties means that Kungsleden has completed its transformation from being a transaction-driven company to becoming a company that actively owns, manages and develops properties to maximise operating net income and build property value for the long term. A strong profit in the third quarter of 2013 combined with the potential in GE Capital’s property portfolio mean that I’m optimistic about Kungsleden’s progress going forward.
Chief Executive Officer
For more information, please contact:
Biljana Pehrsson, Chief Executive of Kungsleden | Phone +46 (0)8 503 052 04
Anders Kvist, Deputy CEO and CFO of Kungsleden | Phone +46 (0)8 503 052 11
Detta pressmeddelande finns tillgängligt på svenska på www.kungsleden.se/pressmeddelanden
Kungsleden AB (publ) discloses the information in this press release according to the Swedish Securities Markets Act and/or the Swedish Financial Trading Act. The information was provided for public release on 25 October 2013 at 08:00 a.m.
Kungsleden’s business concept is to own, manage and enhance properties in Sweden’s growth regions, and to generate sustainable high and stable returns. The focus on value creation is by satisfying customers’ needs for premises, managing and enhancing properties, and optimising the company’s property portfolio. Kungsleden has been quoted on Nasdaq OMX Stockholm since 1999.